A Microsoft spokesperson issued the following statement to us (and other news outlets): "The Daily's story is based on inaccurate rumors and speculation. The photo is not a real picture of a Microsoft software product."

Here's our best guess at what's going on, based on how we've seen Microsoft work in the past, and updates from both Microsoft and The Daily (see below).

Microsoft wants to test how Office on the iPad might work, so it built a prototype. Somebody inside Microsoft got excited and spilled the beans. So technically, the software is not a "Microsoft software product."

In fact, we suspect that Microsoft hasn't decided what to do. It might end up releasing something that looks like this soon, just as The Daily reported. Or it could build its own version that looks different. Or it might wait until after Windows 8 tablets are on the market for a while to see if the inclusion of Office is a good selling point.

If it turns out that Office is selling a lot of Windows 8 tablets, don't look for Office on the iPad -- ever.

Update: Peter Ha, the Apps and Tech editor of The Daily, says Microsoft is full of it. He just tweeted: "we did not fabricate either image. A working version of the app was demoed to us by someone at Microsoft."

In an email to Business Insider, Ha clarified: "We said it was a working prototype and that it was being tested internally."

Second update: Microsoft's official news account tweeted "Great respect for The Daily, but someone is giving them bad info, and that'll be clear in the 'coming weeks.'" The "coming weeks" crack is a reference to the last line of The Daily's article, which says it's coming soon.

So Microsoft is not denying that it built an internal prototype of Office for the iPad.